Closing summary
With the London stock market closed for the year, City traders can head off to enjoy the build up to the New Year.
And so shall I!
Hope you have a lovely new year. Very best wishes for 2024 from us all here.
Here are today’s main stories:
The latest economic data from the US has slightly dampened the mood
A barameter of business activity in the Chicago region has fallen this month, and come in lower than expected.
Purchasing managers in the Midwest reported that the Chicago PMI (conducted by the ISM-Chicago and actually named the Chicago Business Barometer™) fell more than expected in December, falling 8.9 points from 55.8 in November to 46.9 in December, a return to contraction. pic.twitter.com/Tz4ulgs2zW
— Dr Thomas Kevin Swift (@DrTKSwift) December 29, 2023
The Chicago PMI, fell 8.9 index points to 46.9 in December, weaker than the 50-point reading expected by economists, and back into contraction territory (below 50).
The index had jumped to 55.8 in November, the highest level in 17 months, after the end of the United Auto Workers strike.
Wall Street trading begins
The US stock market had made a muted opening to the final day’s trading of 2023.
The Dow Jones Industrial Average fell 8.47 points, or 0.02%, at the open to 37,701.63.
The S&P 500 opened lower by 0.47 points, or 0.01%, at 4,782.88, having approached a record high already this week, and the Nasdaq Composite gained 4.06 points, or 0.03%, to 15,099.20.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, says the FTSE 100 index appears to be ‘unloved’ by investors, after it lagged behind rivals this year.
Streeter says:
‘’The FTSE 100 has stumbled over the line, eking out a modest gain for the year but failing to shoot the lights out.
Compared to its international peers, 3.7% is a paltry rise since the last trading day in 2022, especially when you look at just how high the S&P 500 has climbed, up 25% over the year, while the DAX in Frankfurt has jumped by around 20%.
The FTSE 100 reached the heady heights of 8,047.06 in February but has struggled to regain its form. Britain’s blue-chip index still appears unloved with attention grabbed by the bright lights of Wall Street and the tech heavy makeup of New York’s exchanges, with a frenzy for all things AI fuelling buying behaviour. Even though the Brexit hangover has eased, the UK’s stagnating economy and volatile political scene of recent years appears to be putting off investors.
But the DAX’s rally has come despite unfavourable data showing Germany’s economy is contracting. However, with an energy crisis being avoided, gas and crude prices coming down and inflation falling more sharply than expected, it’s buoyed sentiment for listed industrial companies.
FTSE 100 ends 2023 at seven-month closing high
Britain’s FTSE 100 has ended 2023 at its highest closing level in seven months.
Trading on the London stock exchange has just finished for the year, leaving the blue-chip index up 10.5 points today at 7,733 points, up 0.15%.
That’s the FTSE 100’s highest closing point since 23 May 2023, although it was higher during intraday trading on Wednesday, and also before Christmas.
This confirms that the Footsie has lagged most other exchanges this year, with global markets gaining 20% in 2023 and America’s tech-focused Nasdaq Composite up 45%
With less than an hour’s trading to go this year, the London stock market is ending 2023 on an upbeat note.
The FTSE 100 share index has extended its earlier modest games, and is now up 19 points or 0.25% at 7741 points.
That would be its highest closing level since May.
Full story: UK house prices fall by 1.8% during year amid higher mortgage costs
UK house prices fell by 1.8% during 2023, according to the closely watched Nationwide house price index, with activity in the property market described as weak throughout the year.
Nationwide put the fall down to higher mortgage borrowing costs, which have remained more than three times higher than the record lows of 2021 despite recent easing.
Almost all regions of the UK registered falls, barring Northern Ireland, where prices rose by 4.5%, and Scotland, up slightly by 0.5%.
Prices fell everywhere else, with England registering a 2.9% drop and house prices down 1.9% in Wales.
The decline was greater in the south than in the north. More here
Hapag-Lloyd: will continue to divert vessels from the Suez Canal
Hapag Lloyd has decided to continue to divert its vessels around the Suez Canal for security reasons, a spokesperson for the German container shipper told Reuters on Friday.
A next assessment would be made on January 2nd, the spokesperson said.
UK property transactions down 22% year-on-year
New data from HMRC has confirmed that activity in the housing market cooled this year.
There were 80,780 residential transactions in November, HMRC reports, which is 1% lower than in October, and 22% less than in November 2022.
Anna Clare Harper, CEO of sustainable investment adviser GreenResi, says this highlights how higher interest rates have hit the economy:
Firstly, demand has fallen from the artificial buying frenzy created by stamp duty reductions through Covid. Secondly, the higher base rate is designed to cool demand and therefore pricing in the economy, and it is working to plan.
“Essentially, policy levers have reduced households’ ability and willingness to buy homes. However, policy has no impact on people’s need for a roof over their heads.
“Housing need is being displaced into the rental market, and demand there is increasing dramatically. This is a structural trend influenced by factors such as migration, an aging population and shrinking household sizes, rather than a cyclical one. As a result, investors focused on real estate, and policies used to help solve the housing crisis must also focus on the long term.”
Financial data provider Moneyfacts reports that average fixed-rate mortgage costs are unchanged today.
It says:
The average 2-year fixed residential mortgage rate today is 5.94%. This is unchanged from the previous working day.
The average 5-year fixed residential mortgage rate today is 5.56%. This is unchanged from the previous working day.
Back in July, two-year fixed-rate mortgages cost an average of 6.86%, before starting to fall this autumn and winter as City traders began to anticipate several interest rate cuts in 2024.
European stock markets are rising, a little, on the final trading day of 2023.
In London, the FTSE 100 has gained 10 points or 0.13% to 7732 points, taking its gains this year to 3.8%.
The pan-European Stoxx 600 index is 0.2% higher, taking its annual gains towards 13%.
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, says the final trading day of the year has got off to sluggish start:
“There isn’t too much festive cheer for UK stocks on the final trading day of 2023. The FTSE 100 has barely budged in early trading, with news of sluggish house price growth in December adding weight behind the theory of slowing activity.
There is an especially strong lens on consumer-facing stocks – we’re only a couple of weeks away from hearing how retailers fared over the crucial Christmas period. Short sellers are circling some areas of the sector in the expectation of bad news. A combination of life becoming more expensive and the prevalence of online options means momentum for the bricks and mortar players has become even harder to harness.
Although prices have dipped this year, 2023 is ending without the housing market crash which many had predicted following the mini-budget of September 2022.
The market has been “remarkably resilient”, says Karen Noye, mortgage expert at Quilter:
Mortgage rates have risen rapidly throughout the year and cost-of-living pressures forced many people to put their plans to move home or take their first step onto the property ladder on hold, but the lack of housing stock and soaring rent prices has resulted in a remarkably resilient market, though demand has certainly been subdued.
“For some households, however, things will not be quite so rosy and there is still a risk that we could see more people forced to sell their homes if the financial strain proves too much to bear.
Matt Thompson, head of sales at Chestertons, says December has been a busier month than normal, as buyers search for homes:
Pent-up demand caused by this year’s economic uncertainty is a key reason for this delay in buyer activity and indicates that 2024 will start off with a rather active property market.”
And looking ahead, Thompson adds that cash buyers should support house prices in the UK capital:
Chestertons forecasts that UK house prices will experience a slight decline of -0.3% over 2024, while London prices will show growth of 1.8% due to the higher number of cash buyers that are less affected by the higher interest rates.
The prospect of a slightly stronger economic outlook from 2025 feeds through to a more meaningful uplift in house prices. The agency forecasts that this will result in growth of between 3.5% and 4.5% across London and the UK. However, any house price growth is more likely to be slow and steady rather than spectacular.
Despite the recent falls in fixed-rate mortgage costs, housing affordability has remained stretched.
Nationwide says:
A borrower earning the average UK income and buying a typical first-time buyer property with a 20% deposit would have a monthly mortgage payment equivalent to 38% of take-home pay – well above the long run average of 30%.
“At the same time, deposit requirements remain prohibitively high for many of those wanting to buy – a 20% deposit on a typical first-time buyer home equates to c105% of average annual gross income – down from the all-time high of 116% recorded in 2022, but still close to the pre-financial crisis level of 108%.
Jeremy Leaf, north London estate agent, say this morning’s report from Nationwide shows “house price resilience”, adding:
“Lower inflation and strong employment figures are reducing the sting of serious price rises and providing a more balanced market as we move into 2024.
“Looking forward, we see a slightly more positive outlook, with is likely to result in more transitions and prices bumping along a little lower over the next few months at least.”
There is growing evidence that the worst of the UK’s house price correction is behind us, argues Tom Bill, head of UK residential research at estate agent Knight Frank.
Bill predices that the housing market will return to normality in 2024 – although the looming general election could cast a shadow.
He says:
As inflation falls, downwards pressure on mortgage rates means demand should strengthen and transaction numbers will move closer to their longer-term norms in 2024.
A tight jobs market, the availability of longer mortgages, the fact more homes are owned outright than with a mortgage and the absence of forced selling due to tougher mortgage stress-testing rules since the global financial crisis have all helped avoid steeper price declines as interest rates normalise.
Pre-election giveaways may boost sentiment further next year although the UK housing market is likely to stutter ahead of the vote itself.”
According to lender @AskNationwide House “prices” ended the year down 1.8% on last year, making the AVG house price in Dec 23, £257,443, 4.5% ⬇️ from their Sep 22 peak. pic.twitter.com/JTzz3NSODD
— Emma Fildes (@emmafildes) December 29, 2023
Price drops varied across Eng with East Anglia performing the worst, ⬇️ 5.2%. Only Northern Ireland & Scotland saw prices prosper bolstering end of year house price results with lender @AskNationwide pic.twitter.com/bLdrdMqZc1
— Emma Fildes (@emmafildes) December 29, 2023
Nationwide predicts house prices could decline in 2024
A rapid rebound in activity or house prices in 2024 appears unlikely, warns Nationwide’s Robert Gardner.
Looking ahead, Gardner say:
“There have been some encouraging signs for potential buyers recently, with mortgage rates edging down. Investors have become more optimistic that the Bank of England has already raised rates far enough to return inflation to target and will reduce rates in the years ahead. This shift in view is important, as it has brought down longer-term interest rates, which underpin fixed mortgage rate pricing.
“Nevertheless, a rapid rebound in activity or house prices in 2024 appears unlikely. While cost-of-living pressures are easing, with the rate of inflation now running below the rate of average wage growth, consumer confidence remains weak and surveyors continue to report subdued levels of new buyer enquiries. Moreover, while markets are projecting that the next Bank Rate move will be down, there are still upward risks to interest rates. Inflation is declining, but measures of domestic price pressures remain far too high.
“It appears likely that a combination of solid income growth, together with modestly lower house prices and mortgage rates, will gradually improve affordability over time, with housing market activity remaining fairly subdued in the interim. If the economy remains sluggish and mortgage rates moderate only gradually, as we expect, house prices are likely to record another small decline or remain broadly flat (perhaps 0 to -2%) over the course of 2024.
Southern England sees faster house price falls than the north
UK house prices fell faster in the south of England than the north this year, Nationwide’s new house price index shows.
Robert Gardner, Nationwide’s chief economist, explains:
“Across northern England (which comprises North, North West, Yorkshire & The Humber, East Midlands and West Midlands), prices were down 1.8% year on year. Yorkshire & The Humber was the best performing northern region with an annual rate of change of -0.5%.
“Meanwhile southern England (South West, Outer South East, Outer Metropolitan, London and East Anglia) saw a 3.4% year-on-year fall.
London was once again the best performing southern region with a 2.4% annual decline.
Updated
Introduction: House prices fall 1.8% in 2023, on final City trading day of the year
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
It’s the final trading day of 2023! And Nationwide, the building society, is kicking the day off by reporting that UK house prices have fallen by 1.8% over the last year.
That’s a smaller fall than expected at the start of the year, when some analysts predicted prices could fall by over 10%, as the market has picked up as mortgage rates fell this autumn.
On a monthly basis, the average price of a house bought with a mortgage dipped to £257,443, down from £258,557 in November.
Robert Gardner, Nationwide’s chief economist, says:
“UK house prices ended 2023 down 1.8% compared with December 2022, leaving them almost 4.5% below the all-time high recorded in late summer 2022. Prices were flat compared with November, after taking account of seasonal effects.
Nationwide’s latest house price report found that Northern Ireland and Scotland were the only parts of the UK to see prices rise in 2023.
Northern Ireland was the best performer in 2023, with prices up 4.5% over the year, while average prices in Scotland rose by 0.5%.
East Anglia was the weakest performing region, with prices down 5.2% over the year.
The broad picture is that “housing market activity was weak throughout 2023”, says Gardner, adding:
The total number of transactions has been running at c10% below pre-pandemic levels over the past six months, with those involving a mortgage down even more (c20%), reflecting the impact of higher borrowing costs.
On the flip side, the volume of cash transactions has continued to run above pre-Covid levels.
More details and reaction to follow…
Also coming up today
London stock market traders can knock off early today, with trading due to finish at lunchtime.
That will round off a year in which Britain’s FTSE 100 index has lagged behind other share indices. The UK’s blue-chip stock index has gained around 3.6%, while other European markets have gained over 12%.
Wall Street has also had a rather brighter year – last night, the Dow Jones industrial average hit its second record-high closing level in a row, and the S&P 500 inched even closer to its own alltime peak.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, says the 2023 was completely different than what was expected.
Ozkardeskaya explains:
We were expecting the US to enter recession, but the US printed around 5% growth in the Q3.
We were expecting the Chinese post-Covid reopening to boost the Chinese growth and fuel global inflation, but a year after the end of China’s zero-Covid measures, China is suffocating due to an unexpected deflation and worsening property crisis.
We were expecting last year’s negative correlation between stocks and bonds to reverse – as recession would boost bond appetite but batter stocks. None happened.
Bond traders can also celebrate a strong end to a tricky year. In October, bond funds were facing their third year of losses in a row.
But now, the world’s debt market is on track to post its biggest two-month gain on record as traders ramp up expectations that central banks everywhere will slash interest rates next year.
The Bloomberg Global Aggregate Total Return Index has risen nearly 10% over November and December, its best two-month run in data going back to 1990.
The agenda
7am GMT: Nationwide’s house price index for December
12.30pm GMT: London stock market closes early for the new year
2.45pm GMT: The Chicago PMI for company growth in the Chicago region
Updated
